<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 29, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From To
----- -----
COMMISSION FILE NUMBER 1-5742
RITE AID CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 23-1614034
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
30 HUNTER LANE, CAMP HILL, PENNSYLVANIA 17011
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(717) 761-2633
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
[X] YES [ ] NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
The registrant had 128,911,067 shares of its $1.00 par value Common
Stock outstanding as of December 27, 1997
Total number of sequentially numbered pages in this filing, including
exhibits thereto: 20
<PAGE> 2
2
RITE AID CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements:
<S> <C>
Condensed Consolidated Balance Sheets November 29, 1997 and March 1, 1997 2
Condensed Consolidated Statements of Income
Thirteen Weeks Ended November 29, 1997 and November 30, 1996 3
Condensed Consolidated Statements of Income
Thirty-Nine Weeks Ended November 29, 1997 and November 30, 1996 4
Condensed Consolidated Statements of Cash Flows
Thirty-Nine Weeks Ended November 29, 1997 and November 30, 1996 5
Notes to Condensed Consolidated Financial Statements 6
Independent Auditors' Review Report 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
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<PAGE> 3
3
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 29, 1997
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
RITE AID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
November 29, 1997 March 1, 1997
----------------- -------------
<S> <C> <C>
(Unaudited)
CURRENT ASSETS
Cash $ 83,214 $ 7,042
Accounts and Notes Receivable 127,382 370,588
Inventories 2,844,040 2,336,659
Prepaid Expenses and Other Current Assets 66,919 57,210
----------- -----------
TOTAL CURRENT ASSETS 3,121,555 2,771,499
----------- -----------
Property, Plant and Equipment, at Cost 2,959,411 2,669,856
Accumulated Depreciation 872,157 773,786
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET 2,087,254 1,896,070
----------- -----------
INTANGIBLE ASSETS
Excess of Cost Over Underlying Equity in Subsidiaries (Less
Accumulated Amortization of $45,978 and $19,595) 1,557,362 1,260,777
Lease Acquisition Costs and Other Intangible Assets (Less
Accumulated Amortization of $156,991 and $132,696) 405,955 383,862
----------- -----------
TOTAL INTANGIBLE ASSETS 1,963,317 1,644,639
----------- -----------
Other Assets 106,629 104,773
----------- -----------
TOTAL ASSETS $ 7,278,755 $ 6,416,981
=========== ===========
CURRENT LIABILITIES
Short-Term Debt and Current Maturities of Long-Term Debt $ 46,000 $ 44,255
Accounts Payable 912,673 601,301
Income Taxes 110,258 18,484
Sales and Other Taxes Payable 43,895 34,985
Accrued Salaries, Wages and Other Current Liabilities 411,793 472,985
----------- -----------
TOTAL CURRENT LIABILITIES 1,524,619 1,172,010
----------- -----------
Long-Term Debt, Less Current Maturities 2,482,250 2,317,789
Capital Lease Obligations 86,898 97,863
Deferred Income Taxes 233,693 221,855
Noncurrent Liabilities 134,203 118,779
STOCKHOLDERS' EQUITY
Common Stock, Par Value $1 Per Share; Issued 135,393,686
and 129,342,043 135,394 129,342
Additional Paid-In Capital 1,566,227 1,365,771
Retained Earnings 1,222,084 1,100,185
Cumulative Pension Liability Adjustments (1,867) (1,867)
Treasury Stock, at Cost (6,532,169 Shares) (104,746) (104,746)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 2,817,092 2,488,685
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,278,755 $ 6,416,981
=========== ===========
</TABLE>
See accompanying independent auditors' review report and notes to condensed
consolidated financial statements.
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<PAGE> 4
4
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 29, 1997
Item 1. Financial Statements: (Continued)
RITE AID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Thirteen Weeks
Ended Ended
November 29, 1997 November 30, 1996
----------------- -----------------
<S> <C> <C>
SALES $2,885,666 $1,484,641
---------- ----------
COSTS AND EXPENSES:
Costs of Goods Sold Including Occupancy Costs 2,115,739 1,100,706
Selling, General and Administrative Expenses 613,424 302,697
Interest Expense 42,779 20,703
---------- ----------
2,771,942 1,424,106
---------- ----------
INCOME BEFORE INCOME TAXES 113,724 60,535
Income Taxes 45,830 23,126
----------- ----------
NET INCOME $ 67,894 S 37,409
=========== ==========
EARNINGS PER SHARE $ .54 $ .45
=========== ==========
CASH DIVIDENDS PER COMMON SHARE $ .20 $ .185
=========== ==========
AVERAGE SHARES OUTSTANDING 126,521,000 83,919,000
=========== ==========
</TABLE>
See accompanying independent auditors' review report and notes to condensed
consolidated financial statements.
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<PAGE> 5
5
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 29, 1997
Item 1. Financial Statements: (Continued)
RITE AID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Thirty-Nine Weeks
Ended Ended
November 29, 1997 November 30, 1996
----------------- -----------------
<S> <C> <C>
SALES $ 8,184,466 $ 4,313,019
------------ -----------
COSTS AND EXPENSES:
Costs of Goods Sold Including Occupancy Costs 5,964,079 3,185,468
Selling, General and Administrative Expenses 1,769,497 883,148
Interest Expense 121,329 57,902
Nonrecurring Costs -- 16,057
------------ -----------
7,854,905 4,142,575
------------ -----------
INCOME BEFORE INCOME TAXES 329,561 170,444
Income Taxes 132,813 65,110
------------ -----------
NET INCOME $ 196,748 $ 105,334
============ ===========
EARNINGS PER SHARE $ 1.59 $ 1.26
============ ===========
CASH DIVIDENDS PER COMMON SHARE $ .60 $ .555
============ ===========
AVERAGE SHARES OUTSTANDING 124,101,000 83,891,000
============ ===========
</TABLE>
See accompanying independent auditors' review report and notes to condensed
consolidated financial statements.
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<PAGE> 6
6
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 29, 1997
Item 1. Financial Statements: (Continued)
RITE AID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
39 Weeks Ended 39 Weeks Ended
November 29, 1997 November 30, 1996
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES $ 329,561 $ 170,444
Adjustments to Reconcile Net Cash Provided by Operations:
Depreciation and Amortization 203,316 110,662
Accreted Interest on Long-Term Debt 14,097 12,672
Changes in Operating Assets and Liabilities, Net of Effects from Acquisitions:
(Increase) Decrease in Accounts Receivable 259,445 (18,972)
(Increase) in Inventories (407,389) (158,138)
Increase in Accounts Payable 232,685 38,547
Other (106,044) (8,812)
--------- ---------
525,671 146,403
Income Taxes (Paid) (36,418) (23,965)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 489,253 122,438
--------- ---------
INVESTING ACTIVITIES
Purchase of Property, Plant and Equipment (338,459) (336,619)
Purchases of Businesses, Net of Cash Acquired (330,425) (35,087)
Intangible Assets Acquired (47,767) (20,677)
Investments and Advances in Joint Venture -- (30,714)
Proceeds from Dispositions 67,083 --
Other (663) (9,486)
--------- ---------
NET CASH (USED IN) INVESTING ACTIVITIES (650,231) (432,583)
--------- ---------
FINANCING ACTIVITIES
Proceeds from Bond Issuance 641,293 76,785
Net Proceeds (Repayments) of Commercial Paper and Other Long-Term Borrowings (332,520) 284,830
Cash Dividends Paid (74,849) (46,593)
Redemption of Stock Rights -- (839)
Proceeds From Sale of Stock 3,226 1,545
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 237,150 315,728
--------- ---------
INCREASE IN CASH 76,172 5,583
CASH AT BEGINNING OF PERIOD 7,042 3,131
--------- ---------
CASH AT END OF PERIOD $ 83,214 $ 8,714
========= =========
</TABLE>
See accompanying independent auditors' review report and notes to condensed
consolidated financial statements.
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<PAGE> 7
7
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 29, 1997
Item 1. Financial Statements: (Continued)
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1- BASIS OF PRESENTATION
The financial information included herein is unaudited. In addition, the
financial information does not include all disclosures required under generally
accepted accounting principles because certain note information included in the
Company's annual report has not been included in this report; however, such
information reflects all adjustments (consisting primarily of normal recurring
adjustments) which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods. The report of KPMG Peat
Marwick LLP, independent auditors, commenting upon their review accompanies the
condensed consolidated financial statements included in Item 1 of Part I.
The results of operations for the thirteen and thirty-nine weeks ended November
29, 1997 and November 30, 1996 are not necessarily indicative of the results to
be expected for the full year.
NOTE 2- EARNINGS PER SHARE
Earnings per share were computed by dividing net income by the weighted average
number of common stock shares outstanding during the periods.
NOTE 3- RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share" (SFAS No. 128). SFAS No. 128 establishes new standards
for computing and presenting earnings per share (EPS) for entities with
publicly-held common stock. The Company is required to adopt SFAS No. 128 for
the year ending February 28, 1998. If the provisions of SFAS No. 128 had been
used to calculate EPS for the 13-week and 39-week periods ended November 29,
1997 and November 30, 1996, pro forma EPS would have been:
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended
November 29, 1997 November 30, 1996
----------------- -----------------
<S> <C> <C>
Basic Earnings Per Share $.54 $.45
==== ====
Diluted Earnings Per Share $.52 $.44
==== ====
</TABLE>
<TABLE>
<CAPTION>
39 Weeks Ended 39 Weeks Ended
November 29, 1997 November 30, 1996
----------------- -----------------
<S> <C> <C>
Basic Earnings Per Share $1.59 $1.26
===== =====
Diluted Earnings Per Share $1.54 $1.23
===== =====
</TABLE>
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<PAGE> 8
8
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 29, 1997
Item 1. Financial Statements: (Continued)
RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3- RECENT ACCOUNTING PRONOUNCEMENTS (continued)
In June 1997, the Financial Accounting Standards Board issued two new
pronouncements for which provisions are effective for fiscal year ending
February 27, 1999; SFAS No. 130 "Reporting Comprehensive Income" and SFAS No.
131 "Disclosures About Segments of an Enterprise and Related Information." SFAS
No. 130 establishes standards for reporting and display of comprehensive income,
while SFAS No. 131 requires an enterprise to report financial and descriptive
information about its reportable segments. Both standards are being evaluated
for implementation by the company.
NOTE 4- ACCOUNTS RECEIVABLE SECURITIZATION
During November 1997, the company and certain of its subsidiaries entered into
an agreement to sell, on an ongoing basis, a pool of receivables to a wholly
owned bankruptcy-remote special purpose funding subsidiary (the "funding
subsidiary") of the company. Accordingly, the company and certain subsidiaries
transfer all their accounts receivable (principally representing amounts owed by
third-party prescription payers) to the funding subsidiary. The funding
subsidiary has sold and, subject to certain conditions, may from time to time
sell an undivided fractional ownership interest in the pool of receivables to a
multi-seller receivables securitization company. Proceeds of approximately
$286,000,000 were received from the sale of receivables and were used to reduce
outstanding commercial paper borrowings and are reflected as operating cash
flows in the accompanying consolidated statement of cash flows.
NOTE 5- ACQUISITIONS
On August 27, 1997, the company completed its acquisitions of Harco, Inc. and
K&B, Incorporated. The combined purchase price of these companies was
approximately $340,000,000 and was financed through commercial paper borrowings.
The value of goodwill assigned to acquisitions was approximately $300,000,000
using the purchase method of accounting for business combinations. Operating
results for Harco, Inc. and K&B, Incorporated are included in the consolidated
financial statements of the company since August 27, 1997.
NOTE 6- LONG-TERM DEBT
In September 1997, the company completed the sale of $650,000,000, 5.25%
Convertible Subordinated Notes due September 15, 2002. The notes are convertible
into shares of Rite Aid Corporation common stock at any time on or after the
90th day following the last issuance of notes and prior to the close of business
on the maturity date, unless previously redeemed or repurchased, at a conversion
price of $72.275 per share (equivalent to a conversion rate of 13.836 shares per
$1,000 principal amount of notes), subject to adjustment in certain events.
Interest on the notes is payable semiannually on March 15 and September 15 of
each year, commencing on March 15, 1998. The notes may be redeemed at the option
of the company on or after September 15, 2000, in whole or in part. The proceeds
from the sale of the notes were used to refinance and repay commercial paper
previously issued by the company.
On October 15, 1997, the company completed redemption of outstanding 6.75% Zero
Coupon Convertible Subordinated Notes. Most noteholders of the 6.75% Zero Coupon
Convertible Subordinated Notes exercised conversion rights prior to the October
15, 1997 redemption date, resulting in issuance of approximately 5.9 million
shares of common stock.
NOTE 7- SUBSEQUENT EVENT
On January 7, 1998 the company announced that the Board of Directors had
declared a quarterly dividend and a 2 for 1 stock split of the company's common
stock. The quarterly dividend was increased to $.215 per share payable February
2, 1998 to stockholders of record on January 20, 1998.
-7-
<PAGE> 9
9
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 29, 1997
Item 1. Financial Statements: (Continued)
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors
Rite Aid Corporation
Camp Hill, Pennsylvania
We have reviewed the condensed consolidated balance sheet of Rite Aid
Corporation and subsidiaries as of November 29, 1997, and the related condensed
consolidated statements of income for the thirty-nine and thirteen week periods
ended November 29, 1997 and November 30, 1996, and the condensed consolidated
statements of cash flows for the thirty-nine week periods ended November 29,
1997 and November 30, 1996. These condensed consolidated financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Rite Aid Corporation and
subsidiaries as of March 1, 1997, and the related consolidated statements of
income, stockholders' equity and cash flows for the year then ended (not
presented herein); and in our report dated April 24, 1997, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of March 1, 1997, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
KPMG PEAT MARWICK LLP
Harrisburg, Pennsylvania
January 12, 1998
-8-
<PAGE> 10
10
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 29, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations:
Sales for the thirteen-week and thirty-nine week periods ended November 29, 1997
were $2,885,666,000 and $8,184,466,000, respectively, representing increases of
94.4% and 89.8% over the same periods from the previous year. Same-store sales
for the Rite Aid stores increased 9.7% for the quarter, reflecting a 13.9%
increase in pharmacy comparable sales and a 4.1% increase in front-end same-unit
sales. Thrifty PayLess same-store sales increased 3.7% for the 13 weeks ended
November 29, 1997, consisting of a 10.3% increase in comparable pharmacy sales
and a 0.3% decline in front-end sales. Year-to-date, same-store sales increased
9.7% compared to 7.2% for the comparable, 39-week period last year, and Thrifty
PayLess same-store sales increased 4.5%.
Prescription sales accounted for 51.4% of drugstore sales for the quarter, and
third party prescription sales represent 83.4% of pharmacy sales. Last year,
prescription sales were 57.8% of drugstore sales, and third party prescription
sales represented 80.4% of pharmacy sales. Prescription sales for the first 39
weeks of fiscal 1998 were 50.6% of drugstore sales compared to 56.8% for the
same period last year. Year-to-date third party sales as a percent of pharmacy
sales were 83.3% versus 79.4% last year.
Cost of goods sold including occupancy costs, as a percentage of sales, were
73.3% for the quarter and 72.9% for the year-to-date period compared to 74.1%
and 73.9% for the respective periods a year earlier. The company uses the LIFO
inventory method that requires interim estimates of annual inflation rates.
Accordingly, costs of goods sold included a LIFO provision of $2,700,000 for the
quarter and $15,000,000 for the thirty-nine weeks ended November 29, 1997,
compared to $2,400,000 and $13,000,000, respectively for the same periods last
year. The LIFO method of valuing inventory had the effect of reducing net income
$.01 per share for the 13-week period and $.07 per share for the 39-week period
ended November 29, 1997. For the comparable periods last year, the LIFO
adjustments were $.02 for the quarter and $.10 for the 39 weeks. The trend of
decreasing margins on third party reimbursed prescription sales continued to
negatively impact pharmacy gross margins, but were more than offset by front-end
gross margin improvements when compared to the prior year. Gross margins
benefited from improved front-end margins and a higher percentage of front-end
sales to total sales of 49.4% for the thirty-nine weeks ended November 29, 1997
compared to 43.2% in the prior year. The improvement in front-end sales to total
sales was achieved through Thrifty PayLess stores and new stores, both of which
emphasize a greater front-end merchandise mix.
Selling, general and administrative costs of $613,424,000 for the quarter and
$1,769,497,000 year-to-date were 21.3% and 21.6% of sales, respectively. This
compares to 20.4% and 20.9% for the same periods last year. Thrifty PayLess
stores operating costs exceed that of Rite Aid stores and are the main reason
for the period-to-period increase in the operating expense to sales ratio. Also,
the company experienced expenses associated with acquisition integration
activities which accounted for a slight increase in the operating expense ratio.
Nonrecurring costs of $16,057,000, or .4% of sales, were included in the
thirty-nine weeks ended November 30, 1996 associated with the attempted
acquisition of Revco D. S., Inc.
Interest expense was $42,779,000 for the thirteen-week period and $121,329,000
for the thirty-nine week period this year compared to $20,703,000 and
$57,902,000 for the same periods last year. The increase in interest expense
resulted from higher debt levels that were necessary to finance acquisitions;
capital expenditures and incremental working capital requirements for the new,
larger prototype stores; and other drugstore purchases. Also contributing to the
increased expense were slightly higher weighted average interest rates on the
company's commercial paper of approximately 5.7% for the quarter and
year-to-date periods ended November 29, 1997, compared to 5.4% and 5.5% for the
quarter and year-to-date periods last year.
Income taxes were $45,830,000 for the thirteen-week period and $132,813,000 for
the thirty-nine week period ended November 29, 1997 compared to $23,126,000 and
$65,110,000 for the same periods last year. The effective income tax rate
increased to 40.3% during fiscal 1998, because of the increase in nondeductible
intangible amortization expenses. Depreciation and amortization was $75,233,000
for the quarter and $203,316,000 for the thirty-nine week period ended November
29, 1997 compared to $40,265,000 and $110,662,000 in the comparable periods last
year.
Net income for the thirteen weeks rose 81.5% to $67,894,000 compared to
$37,409,000 in fiscal 1997. Earnings per share increased 20.0% to $.54 from $.45
for the prior year's third quarter. Year-to-date, net income increased 86.8% to
$196,748,000 compared to $105,334,000 or $1.59 per share compared to $1.26 per
share. Net income last year included a charge of $9,923,000, or $.12 per share,
for costs associated with the attempted acquisition of Revco D.S., Inc.
-9-
<PAGE> 11
11
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 29, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations: (Continued)
The company will surpass its goal of opening 1,000 new 10,500 square-foot
prototype stores by February 28, 1998. The new larger prototype stores offer
consumers an enhanced merchandise selection and greater convenience. Annualized
first-year sales of the prototype stores exceed $3 million compared to an
average of $2 million for the company's older, smaller stores. The company has
begun a comprehensive review of its current store base to evaluate the impact on
sales and expenses associated with an aggressive plan to eliminate and relocate
the remaining older, smaller stores. In addition to the greater level of capital
expenditures necessary for the new prototype stores, the company must also
consider store closing costs including charges for future minimum lease
obligations associated with closing older locations.
The company is engaged in a comprehensive project to convert its computer
systems to be year 2000 date compliant and expects to successfully complete the
project on a timely basis. The year 2000 issue creates risk for the company
from unforeseen problems in its own computer systems and from that of the
systems of other companies on which the company's operations rely upon. Year
2000 conversion costs are funded through operating cash flows and expensed in
the period incurred.
On August 27, 1997, the company completed its acquisitions of Harco, Inc. and
K&B, Incorporated. The combined purchase price of these companies was
approximately $340,000,000 and was financed through commercial paper borrowings.
The value of goodwill assigned to acquisitions was approximately $300,000,000
using the purchase method of accounting for business combinations. Operating
results for Harco, Inc. and K&B, Incorporated are included in the consolidated
financial statements of the company since August 27, 1997. During the third
quarter, the company added 49 drugstores, closed 33 smaller outlets, enlarged 13
locations and relocated 71 units. An additional 332 stores were acquired at the
end of August with Harco and K&B. Year-to-date totals include 116 new stores, 90
closings, 23 expansions and 148 relocations. At the end of the third quarter,
the company operated 3,981 drugstores.
Working capital was $1,596,936,000 at November 29, 1997 compared to
$1,123,511,000 at November 30, 1996 and the current ratios were 2.0:1 and 3.1:1,
respectively. Cash from operations is used to fund working capital requirements,
fund dividend distributions to shareholders and contribute to investing
activities including store expansion and acquisitions. The company maintains $1
billion in revolving credit commitments to provide additional borrowing capacity
and support its commercial paper program.
During November 1997, the company and certain of its subsidiaries entered into
an agreement to sell, on an ongoing basis, a pool of receivables to a wholly
owned bankruptcy-remote special purpose funding subsidiary (the "funding
subsidiary") of the company. Accordingly, the company and certain subsidiaries
transfer all their accounts receivable (principally representing amounts owed by
third-party prescription payers) to the funding subsidiary. The funding
subsidiary has sold and, subject to certain conditions, may from time to time
sell an undivided fractional ownership interest in the pool of receivables to a
multi-seller receivables securitization company. Proceeds of approximately
$286,000,000 were received from the sale of receivables and were used to reduce
outstanding commercial paper borrowings and are reflected as operating cash
flows in the accompanying consolidated statement of cash flows.
In September 1997, the company sold $650,000,000, 5.25% Convertible Subordinated
Notes due September 15, 2002. Each $1,000 principal amount of notes will be
convertible into 13.836 shares ($72.275 per share conversion price) of Rite Aid
Corporation common stock pursuant to the terms of the notes. Interest on the
notes is payable semiannually beginning on March 15, 1998. The notes may be
redeemed at the option of the company on or after September 15, 2000, in whole
or in part. The proceeds from the notes were used to refinance and repay
commercial paper previously issued by the company.
On October 15, 1997, the company completed redemption of outstanding 6.75% Zero
Coupon Convertible Subordinated Notes. Most noteholders of the 6.75% Zero Coupon
Convertible Subordinated Notes exercised conversion rights prior to October 15,
1997, resulting in issuance of approximately 5.9 million shares of common stock.
Certain statements contained herein and elsewhere in this Form 10-Q which are
not historical facts are forward-looking statements made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements address activities or events which the company
expects will or may occur in the future, such as increases in same-store sales,
increases in third-party prescription volumes, increases in the ratio of
front-end sales to total sales, increases in gross profits, decreases in the
operating expense to total sales ratio, future acquisitions, future capital
-10-
<PAGE> 12
12
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 29, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations: (Continued)
expenditures, new prototype store openings, future store closings, remodels,
renovations, expansions and relocations, successful completion of the year 2000
conversion project, additional distribution facilities, and other aspects of the
company's future business and operations. The company cautions that a number of
important factors could cause actual results to differ materially from those
expressed in any forward-looking statements, whether written or oral, made by or
on behalf of the company. Such factors include, but are not limited to,
competitive pricing pressures, third party prescription reimbursement levels,
consumer preferences, regulatory changes governing pharmacy practices, general
economic conditions, inflation, merchandise supply constraints, interest rate
movements, availability of real estate, construction and start-up of drugstore
and distribution center facilities, and the effects of commercialization and
technological difficulties. Consequently, all of the forward-looking statements
made are qualified by these and other factors, risks and uncertainties.
-11-
<PAGE> 13
13
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 29, 1997
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
Item 11. Statement re computations of per share earnings
Item 12. Statement re computations of ratios of earnings to
fixed charges
Item 15. Copy of letter from independent accountants regarding
unaudited interim financial information
Item 27. Financial Data Schedule (EDGAR Filing Only)
(b) Reports on Form 8-K
None.
-12-
<PAGE> 14
14
RITE AID CORPORATION
FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED NOVEMBER 29, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RITE AID CORPORATION
(Registrant)
Date: January 12, 1998 /s/ Frank Bergonzi
- ----------------------- -------------------------
Frank Bergonzi
Executive Vice President,
Chief Financial Officer
-13-
<PAGE> 15
15
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
ITEM 11 STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS.
ITEM 12 STATEMENTS RE COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
ITEM 15 COPY OF LETTER FROM INDEPENDENT ACCOUNTANTS' REGARDING
UNAUDITED INTERIM FINANCIAL INFORMATION
ITEM 27 FINANCIAL DATA SCHEDULE (EDGAR FILING ONLY).
-14-
<PAGE> 1
16
EXHIBIT 11
RITE AID CORPORATION AND SUBSIDIARIES
STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS
THIRTEEN WEEKS ENDED NOVEMBER 29, 1997 AND NOVEMBER 30, 1996
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
November 29, 1997 November 30, 1996
----------------- -----------------
<S> <C> <C>
EARNINGS PER COMMON SHARE - ASSUMING NO DILUTION
Net income $ 67,894 $37,409
======== =======
Weighted average number of common shares outstanding 126,521 83,919
======== =======
Earnings per common share - assuming no dilution $ .54 $ .45
======== =======
EARNINGS PER COMMON SHARE - ASSUMING FULL DILUTION (b)
Earnings
Net income $ 67,894 $37,409
Add after tax interest expense applicable to 6.75% convertible debentures (a) 800 2,092
-------- -------
Net income, as adjusted (b) $ 68,694 $39,501
======== =======
Common Shares
Weighted average number of common shares outstanding 126,521 83,919
Assuming conversion of 6.75% convertible debentures 2,327 5,953
Assuming exercise of options reduced by the number of shares which could have been
purchased with the proceeds from exercise of such options 2,586 933
-------- -------
Weighted average number of common shares outstanding, as adjusted (b) 131,434 90,805
======== =======
Earnings per common share assuming full dilution (b) $ .52 $ .44
======== =======
</TABLE>
(a) Shown net of income taxes which were calculated at the company's
effective tax rate.
(b) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by APB Opinion No. 15 since the
dilution is not material.
<PAGE> 2
17
EXHIBIT 11
RITE AID CORPORATION AND SUBSIDIARIES
STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS
THIRTY-NINE WEEKS ENDED NOVEMBER 29, 1997 AND NOVEMBER 30, 1996
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
November 29, 1997 November 30, 1996
----------------- -----------------
<S> <C> <C>
EARNINGS PER COMMON SHARE - ASSUMING NO DILUTION
Net income $196,748 $105,334
======== ========
Weighted average number of common shares outstanding 124,101 83,891
======== ========
Earnings per common share - assuming no dilution $ 1.59 $ 1.26
======== ========
EARNINGS PER COMMON SHARE - ASSUMING FULL DILUTION (b)
Earnings
Net income $196,748 $105,334
Add after tax interest expense applicable to 6.75% convertible debentures (a) 5,281 6,102
-------- --------
Net income, as adjusted (b) $202,029 $111,436
======== ========
Common Shares
Weighted average number of common shares outstanding 124,101 83,891
Assuming conversion of 6.75% convertible debentures 4,690 5,953
Assuming exercise of options reduced by the number of shares which could have been
purchased with the proceeds from exercise of such options 2,581 933
-------- --------
Weighted average number of common shares outstanding, as adjusted (b) 131,372 90,777
======== ========
Earnings per common share assuming full dilution (b) $ 1.54 $ 1.23
======== ========
</TABLE>
(a) Shown net of income taxes which were calculated at the company's
effective tax rate.
(b) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by APB Opinion No. 15 since the
dilution is not material.
<PAGE> 1
18
EXHIBIT 12
RITE AID CORPORATION AND SUBSIDIARIES
STATEMENTS RE COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
THIRTY-NINE WEEKS ENDED NOVEMBER 29, 1997 AND
YEARS ENDED MARCH 1, 1997, MARCH 2, 1996, MARCH 4, 1995, FEBRUARY 26, 1994 AND
FEBRUARY 27, 1993
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Thirty-Nine Year Year Year Year Year
Weeks Ended Ended Ended Ended Ended Ended
November 29, March 1, March 2, March 4, February 26, February 27,
1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges
Interest Expense $121,329 $ 96,473 $ 68,341 $ 42,300 $ 28,683 $ 29,387
Interest Portion(1)
of Net Rental Expense 80,676 66,067 52,080 40,424 40,427 37,659
-------- -------- -------- -------- -------- --------
Fixed Charges Before
Capitalized Interest 202,005 162,540 120,421 82,724 69,110 67,046
Capitalized Interest 2,703 1,897 1,948 373 217 445
-------- -------- -------- -------- -------- --------
Total Fixed Charges $204,708 $164,437 $122,369 $ 83,097 $ 69,327 $ 67,491
======== ======== ======== ======== ======== ========
Earnings
Income Before Extra-
ordinary Loss and
Income Taxes $329,561 $258,927(3) $256,202 $231,464 $ 45,670(2) $200,569
Fixed Charges Before
Capitalized Interest 202,005 162,540 120,421 82,724 69,110 67,046
-------- -------- -------- -------- -------- --------
Total Adjusted Earnings $531,566 $421,467 $376,623 $314,188 $114,780 $267,615
======== ======== ======== ======== ======== ========
Ratio of Earnings to
Fixed Charges 2.60 2.56 3.08 3.78 1.66 3.97
======== ======== ======== ======== ======== ========
</TABLE>
(1) The interest portion of the net rental expense is estimated to be equal
to one-third of the minimum rental expense for the period.
(2) Income before extraordinary loss and income taxes for fiscal year 1994
includes a $149,196,000 one-time, pre-tax provision for corporate
restructuring and other charges.
(3) Income before extraordinary loss and income taxes for fiscal year 1997
includes a $68,057,000 one-time, pre-tax charge for nonrecurring and
other charges.
<PAGE> 1
19
EXHIBIT 15
RITE AID CORPORATION AND SUBSIDIARIES
COPY OF LETTER FROM INDEPENDENT ACCOUNTANTS'
REGARDING UNAUDITED INTERIM FINANCIAL INFORMATION
The Board of Directors
Rite Aid Corporation
Camp Hill, Pennsylvania
Ladies and Gentlemen:
Re: Registration Statements No. 333-08071; No. 333-21207; No. 333-39699
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated January 12, 1998 related to our
review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of Sections 7 and 11 of the Act.
Very truly yours,
/s/ KPMG PEAT MARWICK LLP
Harrisburg, Pennsylvania
January 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FORM 10-Q
QUARTERLY REPORT FOR THE QUARTER ENDED NOVEMBER 29, 1997, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> NOV-29-1997
<CASH> 83,214
<SECURITIES> 0
<RECEIVABLES> 138,004
<ALLOWANCES> 10,622
<INVENTORY> 2,844,040
<CURRENT-ASSETS> 3,121,555
<PP&E> 2,959,411
<DEPRECIATION> 872,157
<TOTAL-ASSETS> 7,278,755
<CURRENT-LIABILITIES> 1,524,619
<BONDS> 2,482,250
0
0
<COMMON> 135,394
<OTHER-SE> 2,681,698
<TOTAL-LIABILITY-AND-EQUITY> 7,278,755
<SALES> 8,184,466
<TOTAL-REVENUES> 8,184,466
<CGS> 5,964,079
<TOTAL-COSTS> 5,964,079
<OTHER-EXPENSES> 1,769,497
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 121,329
<INCOME-PRETAX> 329,561
<INCOME-TAX> 132,813
<INCOME-CONTINUING> 196,748
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 196,748
<EPS-PRIMARY> 1.59
<EPS-DILUTED> 1.54
</TABLE>
